Chapter 7

Chapter 7
Urbanization and Rural-

Urban Migration:
Theory and Policy
7-2
Urbanization and Development
– Economic development causes

urbanization
– There is a positive correlation with

economic development and urban
population growth
Urbanization and Development
7-3
Urban7iz-4ation Across Time and Income
7-5
Urbanization Trend
World urban population distribution (in billions)

2000 2025
World 3.2 5.1
MDCs 1.0 (31%) 1.1 (22%)
LDCs 2.2 (69%) 4.0 (78%)
7-6 Distribution of Urban Population
Urban population shares of Asia and Africa are expected to

rise at the expense of Latin America:
2000 2025
Africa 18% 20%
Latin America 22% 15%
Asia 60% 65%
Rate of Urbanization in the World
– According to UN (2019), 55% of the world’s population lives in

urban areas, a proportion that is expected to increase to 68% by
2050.
– Projections show that urbanization, the gradual shift in residence

of the human population from rural to urban areas, combined with
the overall growth of the world’s population could add another 2.5
billion people to urban areas by 2050, with close to 90% of this
increase taking place in Asia and Africa, according to a new
United Nations data set launched today.
– The 2018 Revision of World Urbanization Prospects produced by the Population Division of
the UN Department of Economic and Social Affairs (UN DESA) notes that future increases
in the size of the world’s urban population are expected to be highly concentrated in India,
China and Nigeria accounting for 35% of the projected growth of the world’s urban
population between 2018 and 2050. By 2050, it is projected that India will have added 416
million urban dwellers, China 255 million, and Nigeria 189 million.
– The urban population of the world has grown rapidly from 751 million in 1950 to 4.2 billion
in 2018. Asia, despite its relatively lower level of urbanization, is home to 54% of the world’s
urban population, followed by Europe and Africa with 13% each.
– Today, the most urbanized regions include Northern America

(with 82% of its population living in urban areas in 2018),
Latin America and the Caribbean (81%), Europe (74%) and
Oceania (68%). The level of urbanization in Asia is now
approximating 50%. In contrast, Africa remains mostly rural,
with 43% of its population living in urban areas.
Cities Ranking and Mega Cities
– World’s largest cities: Tokyo - 37 million; New Delhi - 29 million; Shanghai - 26

million; Mexico City and São Paulo - 22 million; Cairo, Mumbai, Beijing and Dhaka -
close to 20 million inhabitants.
– By 2020, Tokyo’s population is projected to begin to decline, while Delhi is projected
to continue growing and to become the most populous city in the world around 2028.
– By 2030, the world is projected to have 43 megacities with more than 10 million
inhabitants, most of them in developing regions. However, some of the fastest-
growing urban agglomerations are cities with fewer than 1 million inhabitants, many
of them located in Asia and Africa. While one in eight people live in 33 megacities
worldwide, close to half of the world’s urban dwellers reside in much smaller
settlements with fewer than 500,000 inhabitants.
Urbanization in the World
7-11
Projected Urban and Rural Population
7-12 MDCs and LDCs, 1950-2030
7-16
Most Populated Cities
– Of the 15 largest cities, 4 are in MDCs (LA, NY, Tokyo,

and Osaka) and 11 are in LDCs
– By 2015, the ranking of these largest cities will

change in favor of the LDCs (e.g., NY falls from no. 3
to 11)
Largest Cities in the World
7-17
Mega-Cities:
7-1C8ities with 10 Million+ Inhabitants
Size of Largest Cities
7-19
7-20
Location of Migrant Workers
– Migrant workers move to nearby towns and large cities,

and especially the capital city
– They reside in slums and shanty towns where low cost

housing is available
Slums in Urban L D C s
7-21
7-22
Urbanization
The LDCs experience rapid urban population

growth because of
– Natural increase: birth rate > death rate
– Rural-urban migration: movement of rural workers to

urban areas
7-23
Contribution of R - U Migration
– On average, about 50% of urban population growth of the

LDCs is due to R-U migration
– Rapid R-U migration has resulted in the construction of

slumps and shanty towns that house a large percentage of
urban population
Extent of R - U Migration
7-24
7-25
Components of Migration
7-26
Dualistic Economic Structure
– Formal sector: organized and regulated economic

system (e.g., government agencies, banks); it generates
2/3 of GDP
– Informal sector: fragmented and unregulated economic

system (e.g., street vendors, loan sharks); it generates
1/3 of GDP
7-27
Dualistic Labor Market
– Formal labor market: skilled labor (e.g., government

employees, teachers) and professionals with
education and license
– Informal labor market: semi-skilled and unskilled

labor (e.g., small business, street vendors)
7-28
Urban Informal Sector
– Most rural migrants find jobs in the

“informal” urban labor markets
– The “informal” urban labor force is a large

component of the urban labor force
7-29
Informal Employment
7-30
Developing Urban Informal Sector
Advantages of investment in urban “informal” sector
– Contributes to economic growth
– Requires small capital investment
– Requires low cost of training and education
– Supplies semi-skilled labor to industry
– Uses labor-intensive technology to create jobs

7-31
Developing Urban Informal Sector
Disadvantages of investment in the urban “informal”

sector
– Induces R-U migration
– Exerts pressure on urban infrastructure
– Adds to pollution, congestion, and crime

7-32
Women in U-Informal Sector
– Represent the bulk of the informal sector labor supply

– Earn low wages in unstable jobs with no benefits (e.g.,
housekeeping)
– Run micro-enterprises (e.g., home-made foodstuffs and

handicrafts)
– Engage in illegal activities (e.g., prostitution)

7-33
Urban Unemployment
– Urban open-unemployment is in double-digits in

many LDCs
– The problem is much more serious because
– Discouraged workers are excluded
– Underemployment is not measured
Urban Unemployment 7-34
7-35
Todaro’s R - U Migration Model
– Factors affecting migration decision

– Expected urban income
– Probability of finding an urban job
– Cost of living in urban areas
– Decision criterion:
– Migration will take place if the present value of “expected”
benefits exceed costs
7-36
Todaro’s R - U Migration Model
Benefits from migration:
– Higher urban wage
– Enjoyment from urban entertainment

Todaro’s R - U Migration Model 7-37
Costs of migration:
– Transportation cost
– Opportunity cost of being unemployed
– Greater living expenses
– Psychic cost of being away from home and family
7-38
Todaro’s R-U Migration Model
Non-economic factors inducing migration:
– Distance: the farther the distance, the larger is

the transportation cost
– Relatives living in urban areas helping reduce

living expenses
7-39
Todaro’s R-U Migration Model
Non-economic factors inducing migration:
– Information flow about job openings in the “informal”

sector
– City lights: movie theaters, restaurants, amusement

parks, etc.
7-40
Todaro’s Migration Decision Tree
7-41
Wage Differentials and Employment
Agricultural Wage Rate Manufacturing Wage Rate

A
At WM, OMLM is urban employment and OALA M
is rural employment. LALM is the “migrant pool:
Those who are either unemployed or engaged in
low-skilled activities in informal sector q’
WM
WA
W*A q E W*M
M’
W**A A’
OA LA L*A=L*M LM OM
7-42
Policies Inducing R - U Migration
– Neglect of agriculture: industrialization at the expense of

agricultural development
– Urban bias development strategies: investment in urban

industrial development
– Job creation in urban areas by government and

manufacturing and services industries
7-43
Policies Inducing R - U Migration
– Educational opportunities in urban areas:

R-U brain drain
– Cash and in-kind subsidies to government

employees and factory workers
7-44
Policies Reducing R - U Migration
– Eradicate poverty and reduce population growth

– Promote rural and agricultural development
– Create jobs in rural areas: expand small-scale, labor-
intensive industries
– Eliminate factor-price distortions and adopt “appropriate”
production technologies
– Modify direct link between education and employment

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Urbanization and Rural-

– Economic development causes

– There is a positive correlation with

World urban population distribution (in billions)

Urban population shares of Asia and Africa are expected to

– According to UN (2019), 55% of the world’s population lives in

– Projections show that urbanization, the gradual shift in residence

– Today, the most urbanized regions include Northern America

– World’s largest cities: Tokyo - 37 million; New Delhi - 29 million; Shanghai - 26

– Of the 15 largest cities, 4 are in MDCs (LA, NY, Tokyo,

– By 2015, the ranking of these largest cities will

– Migrant workers move to nearby towns and large cities,

– They reside in slums and shanty towns where low cost

The LDCs experience rapid urban population

– Natural increase: birth rate > death rate

– Rural-urban migration: movement of rural workers to

– On average, about 50% of urban population growth of the

– Rapid R-U migration has resulted in the construction of

Dualistic Economic Structure

– Formal sector: organized and regulated economic

– Informal sector: fragmented and unregulated economic

Dualistic Labor Market

– Formal labor market: skilled labor (e.g., government

– Informal labor market: semi-skilled and unskilled

Urban Informal Sector

– Most rural migrants find jobs in the

– The “informal” urban labor force is a large

– Contributes to economic growth

– Requires small capital investment

– Requires low cost of training and education

– Supplies semi-skilled labor to industry

– Uses labor-intensive technology to create jobs

Developing Urban Informal Sector

Disadvantages of investment in the urban “informal”

– Induces R-U migration

– Exerts pressure on urban infrastructure

– Adds to pollution, congestion, and crime

Women in U-Informal Sector

– Represent the bulk of the informal sector labor supply

– Run micro-enterprises (e.g., home-made foodstuffs and

– Engage in illegal activities (e.g., prostitution)

– Urban open-unemployment is in double-digits in

– Factors affecting migration decision

Benefits from migration:

– Higher urban wage

– Enjoyment from urban entertainment

Non-economic factors inducing migration:

– Distance: the farther the distance, the larger is

– Relatives living in urban areas helping reduce

Todaro’s R-U Migration Model

Non-economic factors inducing migration:

– Information flow about job openings in the “informal”

– City lights: movie theaters, restaurants, amusement

Agricultural Wage Rate Manufacturing Wage Rate

Policies Inducing R - U Migration

– Neglect of agriculture: industrialization at the expense of

– Urban bias development strategies: investment in urban

– Job creation in urban areas by government and